Publication

This paper examines the surplus of the US balance of payments income account. The author states that due to a large differential in reported earnings on direct investment, US firms seem to enjoy a much higher rate of return than foreign firms in the US. The paper states that there is little difference in terms of the rate of dividend payments, but that the actual differences are due to what are reinvested earnings, hence earnings minus the dividends. The paper details how foreign firms report almost no reinvested earnings on their direct investment in the US whereas US firms report substantial reinvested earnings from their direct investment abroad. The author describes how such an anomaly is due to the desire of foreign firms to minimize their US taxes, whereas US firms do not face tax liabilities if they report high foreign profits to the US authorities.